Pratibha College

of Commerce and Computer Studies

Course- TYBBA(IB)
Bachelor of Business Administration In International
Business

Subject- Business Reporting and Analysis

Name- Chirag Oswal

Roll No- 108
 Assignment No.2
Explain Mergers, Acquisitions, Strategic Alliances with
examples. Each should consist of 2 examples with description
regarding 1. Meaning 2. Represent example with : How it
became advantageous to Companies, Customers, Economy
of our Country
Ans-
Introduction –For business expansion the organization or a
company need to take some informed decision with other
companies which can be a merger or an acquisition or it can
be a strategic alliance. This may help the other company or an
organization to enter into a new market and also learn about
new technology.
Merger- Definition: The term ‘merger’ is used to mean
the unification of two or more business houses to form an
entirely new entity. It leads to the dissolution of more or more
entities, to get absorbed into another undertaking, which is
relatively bigger in size.
Meaning in simpler terms – Merger is defined as a
combination of two or more companies into a single company
where one survives and the other loses their corporate
existence. The survivor acquires the assets as well as
liabilities of the merged company or companies. It is simply a
combination of two or more businesses into one business.
Laws in India use the term ‘amalgamation’ for merger. It
usually involves two companies of the same size and stature
joining hands. There are different types of concept in which
merging of the companies take place like, Horizontal Merger,
Vertical Merger, Conglomerate Merger, and Reverse Merger.
 It is a strategy adopted by the company to maximise
company’s growth by expanding its production and
marketing operations, that results in synergy, increased
customer base, reduced competition, introduction to a new
market/product segment, etc.

Examples-
1) TATA STEEL-CORUS:
Tata Steel is one of the biggest ever Indian’s steel company
and the Corus is Europe’s second largest steel company. In
2007, Tata Steel’s takeover European steel major Corus for
the price of $12.02 billion, making the Indian company, the
world’s fifth-largest steel producer. Tata Sponge iron, which
was a low-cost steel producer in the fast developing region of
the world and Corus, which was a high-value product
manufacturer in the region of the world demanding value
products. The acquisition was intended to give Tata steel
access to the European markets and to achieve potential
synergies in the areas of manufacturing, procurement, R&D,
logistics, and back office operations.

2) VODAFONE-HUTCHISON ESSAR:
Vodafone India Ltd. Is the second largest mobile network operator in
India by subscriber base, after Airtel. Hutchison Essar Ltd (HEL) was
one of the leading mobile operators in India. In the year 2007, the
world’s largest telecom company in terms of revenue, Vodafone made
a major foray into the Indian telecom market by acquiring a 52
percent stake in Hutchison Essat Ltd, a deal with the Hong Kong
based Hutchison Telecommunication International Ltd. Vodafone
main motive in going in for the deal was its strategy of expanding into
emerging and high growth markets like India. Vodafone’s purchase of
52% stake in Hutch Essar for about $10 billion. Essar group still holds
32% in the Joint venture.
3) SBI Merger with five associate banks:-
Beneficial for the companies and Economy:-
SBI had approved separate schemes of acquisition of State Bank of
Patiala and State Bank of Hyderabad. There will not be any share
swap or cash outgo as they are wholly-owned by the SBI.
Despite having second largest population country, no Indian bank is
in the list of top 50 world's largest bank. With this merger SBI will
become 44th largest bank in the world by assets

 The merger of SBI and its associate banks will result in the
network increase of SBI and its reach would multiply.
 After the amalgamation, it can withstand the strong competition
from private sector banks and can accumulate more resources to
channelize trained manpower across its branches.
 The merger benefits include getting economies of scale and
reduction in the cost of doing business.
 Branch rationalization, if executed well, would be one of the key
synergy benefits from the merger.
 Currently, no Indian bank features in the top 50 banks of the world.
With this merger, visibility at global level is likely to increase.
 Indian Government has decided to merge the PSU banks under
SBI. Well this decision is more extroversive because it has both
Pros and Cons. Firstly after the amalgamation it can withstand the
strong competition from private sector banks and can accumulate
more resources to channelize trained manpower across its
branches. Secondly in terms of cost cutting, instead of setting up
new branches, it can utilize the already existing branches of its
child banks. But if you look at the other side it might not be
beneficiary for the employees because factors like experience,
promotions, hikes come into picture. Now currently SBI is dwelled
with lots of debts in terms of non-performing assets whereas banks
like SBH , SBP are in profits. So, there will be an extra burden on
these child banks if the amalgamation takes place.
 Strong presence in nook and corner of the country.
 Capital adequacy will improve requiring less capital infusion by
government.
 Adoption of development of technologies in associate banks will
be faster.
 SBI 's reach and network will multiply, efficiency will likely to
increase with the rationalization of branches.
 With this merger SBI will be able to finance more and more
mammoth projects that will lead to economic development of the
country.
 The merged entity will be able to tap into cheaper funds more
easily and it will also be able to rationalize the branches all over
the country, to cut down the operation costs.
 The bigger the bank, the better is the diversification of its assets
portfolio and lesser chances that the bank will fail in the system.
 Impact of SBI merger on SBI - SBI merger impact: 47% of
associate banks' offices to shut down State Bank of India (SBI),
which will see five associate banks merge into it on April 1, has
decided to shut down almost half the offices of these banks,
 including the head offices of three of them. This process will start
from April 24. "Out of the five head offices of the associate banks,
we will retain only two. Three head offices of the associate banks
will be unbound along with 27 zonal offices, 81 regional offices
and 11 network offices of the associate banks," SBI Managing
Director Dinesh Kumar Khara told IANS in an interview. "We will
keep their structure in place till April 24 and, post that, we will
start dismantling the associate banks' controlling offices, which
includes head offices, regional offices, zonal offices and network
offices". The five associate banks that will merge with SBI are:
SBBJ (State Bank of Bikaner and Jaipur), SBM (State Bank of
Mysore), SBT (State Bank of Travancore), SBP (State Bank of
Patiala) and SBH (State Bank of Hyderabad). SBI is India's largest
bank with assets of Rs 30.72 lakh crore and figures at No. 64 in the
global ranking of banks (as of December 2015; December 2016
ranking is still awaited). Post-merger, with assets of approximately
Rs 40 lakh crore, it will be among the top 50 banks in the world.
SBI Chief Economist Soumya Kanti Ghosh told IANS that, post-
merger, the bank will be at No. 45.
 The shut-down move is to avoid overlapping offices in the same
area and "we intend to remove any kind of duplicity in the
controlling structure". The five associate banks will cease to exist
as legal entities and become a part of SBI from April 1, but the
various merger processes will start only after April 24, once the
balance sheets of the five entities are audited and added.

TATA COMMUNICATION-NTT DOCOMO

MERGER

Beneficial for the company and economy:-

 Tata Teleservices has sold a stake of 26% to Japan’s NTT
DoCoMo. The deal value is $2.7 bn. Tata Tele has 30 million
CDMA subscribers and is rolling out its GSM services. Some say
the deal is over-valued and some say its not easy to put value on
the fastest growing mobile market in the world. India is the fastest
growing market second only to China. It adds 10mn subscribers
every month. The current subscriber base stands at 300+million
and is expected to be 700 million in 2012. That is almost double to
today’s numbers.

 Great deal it may be, but it has its risks. One reason is that telecom
deals have been controversial in recent times. This goes back to
late last year when the government sold pan-India licenses for $333
million apiece, amid a welter of controversy.

 DoCoMo, in accordance with regulations of the Securities and

Exchange Board of India, expects to make an open offer to acquire
up to 20 per cent of outstanding equity shares of Tata Teleservices
Maharashtra (TTML), a Tata telecommunication company, through
a joint tender offer along with Tata Sons. TTSL and TTML
through the Tata Indicom brand, have increased their combined
share of the fast-growing Indian mobile market and their combined
subscriber base now stands at over 30 million.

 TTSL expects to leverage DoCoMo’s expertise in the development

and delivery of value-added services, where DoCoMo is a firmly
established market leader.
 Debt equity ratio on post acquisition debt is increasing which
shows company debt is increasing after merger. ROCE is constant
it has not change much.Net profit margin increases by 11.10 as it
income increases in post acquisition as compared to pre
acquisition. P/E highly increases in post acquisition from 0 to 12%.
ROE is decreasing by 1.53% which shows that it slightly more debt
than equity. EPS is increasing drastically by 24.27% which is very
profitable for investors. Operating profit margin is increased by
15.43% which shows that company profit margin is very fairly
profitable.
 The return of the target company Tata Communication has been
very poor since the past 15 to 20 days before the acquisition but it
almost got to break-even soon after the acquisition date. This
sustained for the next 8 to 10 days but again got back into negative
returns zone due to poor customer support to the newly entered
Docomo brand in highly competitive communications market in
India.

Strategic alliance:-
 A strategic alliance is an arrangement between two companies
to undertake a mutually beneficial project while each retains its
independence. The agreement is less complex and less binding
than a joint venture, in which two businesses pool resources to
create a separate business entity.
  A company may enter into a strategic alliance to expand into a
new market, improve its product line, or develop an edge over a
competitor. The arrangement allows two businesses to work
toward a common goal that will benefit both.

 The relationship may be short or long-term and the agreement

may be formal or informal.

Understanding the Strategic Alliance:-

While the strategic alliance can be an informal alliance, the
responsibilities of each member are clearly defined. The needs and
benefits gained by the partnered businesses will dictate how long the
coalition is in effect.

 A strategic alliance is an arrangement between two companies

that have decided to share resources to undertake a specific,
mutually beneficial project.
 A strategic alliance agreement could help a company develop a
more effective process.
 Strategic alliances allow two organizations, individuals or other
entities to work toward common or correlating goals.

Strategic Alliance
Bharti Airtel (“Airtel”), India’s largest telecommunications services
provider, and Samsung, India’s No. 1 smartphone and consumer
electronics brand, today announced a strategic alliance to bring a
range affordable 4G smartphone options to customers. The
partnership is part of Airtel’s ‘Mera Pehla Smartphone’ initiative,
under which Airtel aims to partner device manufacturers to build an
open ecosystem of affordable smartphones.

Beneficial for customers:-

 Samsung Galaxy J2, India’s largest selling 4G smartphone, to be
available at an effective price of just Rs 5490.
 Four top models from Samsung’s popular Galaxy J-series range –
J2 (2017), J5 Prime, J7 Prime, and J7 Pro - will be available with
attractive cashback offers, bringing down the effective price of the
device and making them highly affordable for customers. All
devices will come bundled with Airtel’s special recharge pack of
Rs 199 that offers 1GB data/day and unlimited calling to enable
best-in-class experience on India’s leading smartphone network.
 The Rs 1500 cashback will be disbursed to customers over 24
months. At the end of 12 months, customers who have done
recharges (in any denomination of their choice) worth Rs 2500 will
be eligible for the first instalment of Rs 300. They will be eligible
for the second instalment of Rs 1200 provided they complete
another set of recharges worth Rs 2500 over the next 12 months.

Beneficial for companies and Economy

 On the BSE, 1.06 lakh shares were traded on the counter so far
as against average daily volumes of 78.89 lakh shares in one
quarter. The stock had hit a 52-week high of Rs 565 on 3
November 2017 and a 52-week low of Rs 299.55 on 4 January
2017.

 The stock had outperformed the market over the one month till 4
January 2018, gaining 7.77% compared with the Sensex's 3.35%
rise. The stock had also outperformed the market over the past one
quarter, advancing 38.6% as against the Sensex's 7.26% rise. The
scrip had also outperformed the market over the one year, surging
66.28% as against the Sensex's 27.55% rise.

 The large-cap company has equity capital of Rs 1998.70 crore.

Face value per share is Rs 5.
 Bharti Airtel's consolidated net profit fell 63.7% to Rs 586.10
crore on 11.7% decline in net sales to Rs 21776.90 crore in Q2
September 2017 over Q2 September 2016.

Tata Coffee & Starbucks Sign MoU for Strategic Alliance in India

Beneficial for companies and Economy

 Indian Coffee Industry The coffee industry of India is the fifth

largest producer of coffee in the world, accounting for over four
percent of world coffee production, with the bulk of all production
taking place in its Southern states. Avg. Coffee consumption in
India is 10 cups per day. India is the only country that grows all of
its coffee under shade. Indian coffee has a unique historic flavor.

 A 50:50 joint venture was formed and Starbucks coffee was

introduced to the Indian market in October 2012 with a generous
initial investment of $80 million.

 Tata Coffee Area of business- Grows coffee on its own estates,

Processes the beans, Exports green coffee, Manufactures and
exports Instant Coffee
Competitive Advantage of Tata Coffee:

 Competitive Advantage of Tata Coffee The largest integrated

coffee plantation company in the world . It's uniqueness lies in its
ability to produce large quantities of estate specific, strain specific,
special and premium coffee, while maintaining a strict consistency
in quality. It has a hand in every aspect of the coffee making
process With the major coffee consumption markets being
 Arabica-centric, this lobby has been prevailing in international
markets by Tata coffee.

 Starbucks It is an international coffee and coffeehouse
chain based in Seattle, Washington. Starbucks stresses quality
above price and other features it could emphasize. Starbucks
specializes in coffee and related beverages. The company sells
coffee, Italian-style espresso beverages, cold blended beverages, as
well as a selection of premium teas and coffee-related accessories
and equipment.
Competitive advantage of Starbucks:

 Competitive advantage of Starbucks Strong brand image

Starbucks specializes in coffee and related beverages. Starbucks is
the largest coffeehouse company in the world. They have loyal
customer worldwide.

 About the deal

Starbucks is coming India with joining hand to Tata Coffee. Starbucks
will explore setting up stores in the Tata group's retail outlets and
hotels, besides sourcing and roasting coffee beans at Tata Coffee's
Kodagu facility. This Agreement includes opening cafes, bean
sourcing and roasting. One of the hurdles that the two companies have
to sort out is Starbucks’ franchisee-led business model

 The agreement will allow Tata coffee to provide roast coffee bean
to Starbucks in India. Get opportunity to jointly invest in additional
facility for export to other market. Starbucks provide new
technology to the promotion of responsible agronomy practices. A
long term relationship will be formed with this MoU with
Starbucks. After this deal, Tata Coffee is become Asia’s biggest
publicly traded coffee grower
 Starbucks aiming to enter in Indian market through this MoU.
Starbucks believe that India can be an important source for coffee
in the domestic market, that’s why they enter in India. The
knowledge and understanding of the Indian market can be brought
by Tata Global Beverages, because it has been in this play for a
while The Tata also have an arm in retail so there’s a synergy there
as well.
 Starbucks and Tata Coffee developed a long term and intimate
relation-ships. Through this deal they developed open
communication With this MOU Tata Coffee able to know the
requirement and preference of Starbucks more closely Type of
Strategic Decision Making. Formal Decision Making
 This deal will be beneficial for both the side, because this deal has
given a new phase to both the company. As Starbucks prospect
After having MoU with Tata Coffee ,Starbucks is able to enter in
Indian emerging market. From Tata Coffee prospect, after this
deals they are entering in coffee retail outlet business, which is also
giving a new phase to TATA Coffee. They may be revolutionized
the Indian coffee retail outlet industry.

 In January 2011, Starbucks

made an arrangement
 with Tata Global Beverages
to purchase and roast
premium coffee beans at a
new facility
 in southern India. In
January 2012, this was
expanded to an $80
million retail joint
 venture, Tata Starbucks.
 Tata proved to be a very
valuable and trustworthy
partner. It had a lot of
real estate
 experience that facilitated
introducing Starbucks to
Indian consumers. Tata
helped
 Starbucks negotiate for
prime space on the
 heavily-trafficked ground
floor of major
 shopping malls. Tata added
Starbucks inside its existing
upscale retail outlets. Tata
also
 formed a partnership to
offer Starbucks inside its
luxury Taj hotels, and to form
a product
 line of Taj foods sold at
Starbucks.
 Tata’s expertise in local
tastes and market conditions
helped Starbucks learn more
about
 doing business in India.
Tata customized Starbucks’
menu by adding pastries
and ice
 cream, helped modify the
store layout to include locally
sourced furniture and interior
 decorations, helped solve
logistical problems that
hindered the sale of fresh
food, and
 helped develop an effective
human resources strategy.
Employees at Starbucks in
India
 were given highly
structured classroom and
practical training, followed
by additional
 product-specific and
refresher workshops. An
employee referral program
was
 implemented. Outreach to
nongovernmental
organizations (NGOs) was
initiated to hire,
 train, and retain employees
with special needs.
 Perhaps most important for
success in a historically
 protectionist market, Tata’s
coffee
 bean farms and roasting
facilities were successfully
leveraged with Starbucks’
 proprietary roasting
techniques to introduce a
new premium, Indian-sourced
brand, India
 Estates Blend .
 The coffee bean partnership
helped Starbucks create a
cost structure that was
comparable
 to its local rivals. It ensured
consistent quality control,
 and allowed Starbucks to
avoid
 paying 100% import taxes.
This kept costs comparable to
local competitors, and offered
a
 competitive advantage over
multinationals that imported
coffee.
 The partnership with Tata
was also consistent with
Starbucks’ ethical sourcing
initiatives.
 The joint venture
established the Café Practices
 program, to help local
farmers improve
 coffee bean quality, receive
above-market prices for their
coffee beans, obtain seasonal
 loans, reduce coffee
farming’s environmental
impact, and improve working
conditions
 for farm employees
.
 Conclusion
 Starbucks expansion in
India thus far has been
successful. By November
2013, Starbucks
 had 30 stores in India, in the
cities of Mumbai, Delhi,
Bangalore, and Pune. Its
success in
 India was partly attributable
to its unique classification as
hospitality, rather than a retail
 business. This allowed
Starbucks to avoid
constantly shifting
restrictions on foreign
 ownership that have long
plagued other retailers. The
reason for this classification
was
 unclear.
 Starbucks has stated it
plans to keep its global
strategy of identical stores
offering
 identical prices, with a
modified menu. It is worth
noting that other retailers that
insisted
 on following standardized
approaches outside the West
have often not done as well
as
 they could have. However,
Starbucks also wanted to
avoid direct competition with
highly
 successful local competitors.
Starbucks therefore plans to
emphasize its premium social
 experience and foreign
origins, as some European
coffee retailers have done.
Starbucks
 also seems to have accepted
the possibility that it will be
unaffordable to the younger
 generation, which ironically
is more willing than older,
wealthier customers to
consider
 foreign brands. How
Starbucks will ultimately fare
 in the increasingly
competitive Indian
 coffee market remains to be
seen.
 In January 2011, Starbucks
made an arrangement
 with Tata Global Beverages
to purchase and roast
premium coffee beans at a
new facility
 In January 2011, Starbucks
made an arrangement
 with Tata Global Beverages
to purchase and roast
premium coffee beans at a
new facility
Acquisition
 When a target company is acquired by another company, the target
company ceases to exist in a legal sense and becomes part of the
purchasing company. Acquisitions are commonly made by
using cash or debt to purchase outstanding stock, but companies
can also use their own stock by exchanging it for the target firm's
stock.
 An acquisition is when one company purchases most or all of
another company's shares to gain control of that company.
Purchasing more than 50% of a target firm's stock and other assets
allows the acquirer to make decisions about the newly acquired
assets without the approval of the company’s
shareholders. Acquisitions, which are very common in business,
may occur with the target company's approval, or in spite of its
 disapproval. With approval, there is often a no-shop clause during
the process.

 We mostly hear about acquisitions of large well-known companies

because these huge and significant deals tend to dominate the
news. In reality, mergers and acquisitions (M&A) occur more
regularly between small- to medium-size firms than between large
companies.

 TATA MOTOR – JLR(Jaguar and land rover)

Beneficial for companies and Economy

 In June 2008, India-based Tata Motors Ltd. announced that it had
completed the acquisition of the two iconic British brands – Jaguar
and Land Rover (JLR) from the US-based Ford Motors for US$ 2.3
billion. Tata Motors stood to gain on several fronts from the deal.
One, the acquisition would help the company acquire a global
footprint and enter the high-end premier segment of the global
automobile market. After the acquisition, Tata Motors would own
the world’s cheapest car – the US$ 2,500 Nano, and luxury
marquees like the Jaguar and Land Rover. Though there was initial
skepticism over an Indian company owning the luxury brands,
ownership was not considered a major issue at all.

 According to industry analysts, some of the issues that could

trouble Tata Motors were economic slowdown in European and
American markets, funding risks, currency risks etc.

 CURRENT SCENARIO-In less than three years after its

acquisition, Jaguar Land Rover has metamorphosed from a
millstone around Tata Motors’ neck into its crowning jewel. In the
June 2010 quarter, JLR division accounted for nearly 70% of the
company’s net profit and over 60% of its revenues on the
consolidated basis. This was more than what the market has
expected and the stock is up by nearly 150% in the past two trading
sessions.
 JLR benefited from an improvement in its pricing power and a
favourable exchange rate in the US dollar and the euro. The two
worked in tandem and resulted in a sharp 60% jump in JLR
revenue per unit to around £38,000 in June 2010 quarter compared
to the £23,800 a year ago. With the raw material costs remaining
benign, it led to a sharp improvement in the division’s operating
margin and its reported net profit of £221 million (`1,613.3 crore)
in the first quarter as against a net loss of £64 million (`467 crore) a
year ago.

 As soon as the acquisition took place, the highly profit generating

Jaguar as well as Land Rover added to the profit and earnings of
the tata motors. The brand value of JLR added to the highly
reputable Tata Group and the company’s balance sheet. This can be
clearly seen in the line chart above.

Novelis was acquired by Hindalco13

Beneficial for companies and Economy

 The Deal On May 15, 2007, Novelis was acquired by

Hindalco13 through Acquisition Subsidiary (i.e., AV Metals)
pursuant to the Arrangement entered into on February 10, 2007 and
approved by the Ontario Superior Court of Justice on May 14,
2007. As a result of the Arrangement, Acquisition Subsidiary (i.e.,
 AV Metals) acquired all of the Novelis‟s outstanding 75,415,536
common shares at a price of US $44.93 per share, and all
outstanding stock options and other equity incentives were
terminated in exchange for cash payments14.

 The aggregate purchase price for the Novelis‟ common shares

was US $3.4. Immediately following the Arrangement, the
common shares of Novelis were transferred from Hindalco‟s
Acquisition Subsidiary (i.e., AV Metals) to its wholly-owned
subsidiary AV Aluminium Inc. (i.e., AV Aluminium). Hindalco
also assumed US $2.8 billion of Novelis‟ debt for a total
transaction value of US $6.2 billion.

 On June 22, 2007, Novelis issued 2,044,122 additional common

shares to AV Aluminium for US $44.93 a share resulting in an
additional equity contribution of approximately US $92 million.

 Trading on New York Stock Exchange (NYSE) on February 12,

2007.18 During a month after the announcement of the deal,
Hindalco reacted negatively and its share price decreased by 28
percent from Rs.180/- to Rs.130/-. This was something of a
surprise taking into account the fact that there were not any major
changes in the fundamentals of the company. This fall in stock
prices was on account of concerns over the highly leveraged
buyout of Novelis (debt funded to the tune of US $2.85 billion).
Information which was discounted in share price decrease was that
though acquisition claims to be strategic in nature but neither party
was going to benefit immediately.

 The transaction has been unanimously approved by the boards

of directors of both companies. The closing of the transaction is not
conditional on Hindalco obtaining financing. The transaction will
be completed by way of a plan of arrangement under applicable
 Canadian law. It will require the approval of 66.67 percent of the
votes cast by shareholders of Novelis Inc. at a special meeting to be
called to consider the arrangement followed by court approval. The
transaction is also subject to certain other customary conditions,
including the receipt of regulatory approvals. The transaction is
expected to be completed in the second quarter of 2007.

 By 2015, Hindalco was expected to have a global scale of

operations, produce high value added products, marquee customer
base, have multi locations and proximity to customers, and use
advanced technology. Hindalco‟s cost advantage, and Novelis‟
technology and customer base, offered enormous growth potential
especially in emerging markets. Recycled aluminium was an
important growth segment going forward with rising power costs
and scarcity of raw material. Hindalco would achieve the desired
growth in both primary as well as recycled aluminium segment.
Aluminium is a slow moving industry, so it could be interpreted
that if all the objectives of this acquisition (i.e., reduced price
ceiling exposure, product mix and price gains, volume
improvements, leverage on first mover advantage in high value
added product segments in India and working capital management)
were achieved, Hindalco might emerge as yet another Global
Power in aluminium industry from India.
In January 2011, Starbucks
made an arrangement
with Tata Global Beverages to
purchase and roast premium
coffee beans at a new facility
in southern India. In
January 2012, this was
expanded to an $80 million
retail joint
venture, Tata Starbucks.
Tata proved to be a very
valuable and trustworthy
partner. It had a lot of real
estate
experience that facilitated
introducing Starbucks to
Indian consumers. Tata
helped
Starbucks negotiate for
prime space on the
heavily-trafficked ground
floor of major
shopping malls. Tata added
Starbucks inside its existing
upscale retail outlets. Tata also
formed a partnership to offer
Starbucks inside its luxury Taj
hotels, and to form a product
line of Taj foods sold at
Starbucks.
Tata’s expertise in local tastes
and market conditions helped
Starbucks learn more about
doing business in India. Tata
customized Starbucks’ menu
by adding pastries and ice
cream, helped modify the store
layout to include locally
sourced furniture and interior
decorations, helped solve
logistical problems that
hindered the sale of fresh
food, and
helped develop an effective
human resources strategy.
Employees at Starbucks in
India
were given highly structured
classroom and practical
training, followed by
additional
product-specific and
refresher workshops. An
employee referral program
was
implemented. Outreach to
nongovernmental
organizations (NGOs) was
initiated to hire,
train, and retain employees
with special needs.
Perhaps most important for
success in a historically
protectionist market, Tata’s
coffee
bean farms and roasting
facilities were successfully
leveraged with Starbucks’
proprietary roasting techniques
to introduce a new premium,
Indian-sourced brand, India
Estates Blend .
The coffee bean partnership
helped Starbucks create a cost
structure that was comparable
to its local rivals. It ensured
consistent quality control, and
allowed Starbucks to avoid
paying 100% import taxes.
This kept costs comparable to
local competitors, and offered
a
competitive advantage over
multinationals that imported
coffee.
The partnership with Tata was
also consistent with Starbucks’
ethical sourcing initiatives.
The joint venture established
the Café Practices program, to
help local farmers improve
coffee bean quality, receive
above-market prices for their
coffee beans, obtain seasonal
loans, reduce coffee farming’s
environmental impact, and
improve working conditions
for farm employees
.
Conclusion
Starbucks expansion in India
thus far has been successful.
By November 2013, Starbucks
had 30 stores in India, in the
cities of Mumbai, Delhi,
Bangalore, and Pune. Its
success in
India was partly attributable to
its unique classification as
hospitality, rather than a retail
business. This allowed
Starbucks to avoid
constantly shifting
restrictions on foreign
ownership that have long
plagued other retailers. The
reason for this classification
was
unclear.
Starbucks has stated it
plans to keep its global
strategy of identical stores
offering
identical prices, with a
modified menu. It is worth
noting that other retailers that
insisted
on following standardized
approaches outside the West
have often not done as well as
they could have. However,
Starbucks also wanted to avoid
direct competition with highly
successful local competitors.
Starbucks therefore plans to
emphasize its premium social
experience and foreign origins,
as some European coffee
retailers have done. Starbucks
also seems to have accepted
the possibility that it will be
unaffordable to the younger
generation, which ironically is
more willing than older,
wealthier customers to
consider
foreign brands. How Starbucks
will ultimately fare in the
increasingly competitive
Indian
coffee market remains to be
seen.
In January 2011, Starbucks
made an arrangement
with Tata Global Beverages to
purchase and roast premium
coffee beans at a new facility
In January 2011, Starbucks
made an arrangement
with Tata Global Beverages to
purchase and roast premium
coffee beans at a new facilit